Saudi Oil Minister Khalid al-Falih has lashed at Western leaders for promoting the 'myth' of peak oil demand and scare-mongering over vast stranded resources in the fossil fuel industry, accusing of them committing a grave disservice to mankind.

The defiant minister said the campaign of attacks on the high-carbon sector will deter trillions of dollars of vitally-needed investment, leading to a disastrous energy crunch once the current glut is cleared.

"They are doing nothing less than compromising the world's energy security. It will lead to damaging oil price spikes, and more acute poverty for developing countries," he said, speaking at the IHS CERAWeek summit in Houston.

Mr al-Falih said Saudi Arabia welcomes wind, solar, and other renewables but warned that they cannot quench Asia's "insatiable demand" for more oil or meet supply as global energy demand doubles by 2050.

For now the problem is the opposite one. The oil market is over-supplied and inventories remain near record levels, despite an accord last November by OPEC and a Russia-led group of states to cut output by 1.2m barrels a day (b/d).

Mr al-Falih admitted that the global crude market has not yet tightened enough and complained that some countries are cheating on cuts. "It has been slower quite frankly than I had thought in the first two months of this year," he said.  

"Saudi Arabia will not allow itself to be used by others. The agreement is for the benefit of all, and needs to be addressed by all. We cannot accept free riders," he said.

The minister said his country would back cuts only for "a restricted period of time" and warned speculators with big long positions on crude oil derivatives that they should not expect the Kingdom to back-up their bets by choking supply.

"I would caution not to tempt investors into irrational exuberance, or into wishful thinking that OPEC or the Kingdom will underwrite the investments of others at our expense and long-term interests."

It is a strong hint that the Saudis may not agree to extend the deal when it expires in June. OPEC officials have been meeting oil traders at the CERAWeek forum to probe what is happening in the parallel futures market. They have been told that the funds may close their positions en masse and trigger a fresh price crash if OPEC returns to pumping at will.

Traders say Russia has cut barely half the 300,000 b/d pledged, similar to the late 1990s when Moscow never followed through on promises. The country's oil minister Alexander Novak told the forum that Russia would deliver by end of April, but also said dismissively that there are "more important issues to talk about" than the OPEC deal. He digressed instead into the issue of currency wars.  

David Fuller's view

So the Russians have only honoured half of their agreed oil production cut – what a surprise.

Meanwhile, OPEC producers may quietly increase their production following today’s downward dynamic Brent Crude (weekly & daily).  It also helps to have the Permian Basin, easily one of the world’s largest deposits of shale oil, in Texas.   

Saudis remain in a state of shock, due to the USA-led accelerated rate of technological innovation which has made US shale so competitive.  I think their forecasts for “damaging oil price spikes” are wishful thinking.  The Saudi riyal remains pegged to the US$ but for how long?  The risk of a massive devaluation before the end of this decade is increasing. 

(See also: Email of the day 2 “On crude oil” posted on Monday, 6^th March, and also AE-P’s excellent article: Permain Shale Boom in Texas Is Devastating for OPEC)  

Here is a PDF of AE-P's article.